Why RH Stock Jumped 12% Last Month

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What happened

Shares of RH (NYSE: RH), the company formerly known as Restoration Hardware, popped last month on a strong fourth-quarter earnings report. According to S&P Global Market Intelligence, shares of the upscale furniture retailer finished March up 12%. As the chart below shows, the stock was actually in the red for the month until its earnings report came out on March 27:

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So what

After plunging in 2016, RH shares have come roaring back; the company's pivot to a membership model and larger gallery-style stores has paid off. The stock jumped 22.5% on March 28 after the fourth-quarter report came out and the company topped earnings estimates.

Adjusted net revenue increased 13% in the period to $669.7 million, which missed expectations for $672.6 million. However, adjusted earnings per share surged 149% to $1.69, which beat the consensus of $1.55. CEO Gary Friedman credited the power of the company's "new membership model and a dramatically more efficient operating platform." Friedman also said that 95% of the core RH business was driven by members, justifying the switch from a promotional to a membership model.

Now what

Investors also seemed happy with RH's outlook for the current year; the company said it would focus on execution, architecture, cash, and optimizing the profitability of the new platform. Management also said it would focus on driving earnings rather than revenue growth. Consequently, the company expects revenue to increase just 5% to 7% in fiscal 2018 (the current year), to between $2.53 billion and $2.57 billion, but sees adjusted earnings per share at $5.45 to $6.20, up from $3.05 last year.

Looking further ahead, the company expects profitability to continue to improve, with a goal of operating margins in the low-to-mid teens by 2021 and a long-term goal of North American revenue of $4 billion to $5 billion. If the company can execute on those objectives, the stock should continue to rally.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.